EQUITY RESEARCH

Initial Public Offer – Dolla Financial Services Limited

May 2022

1. OFFER SUMMARY

Issuer Dolla Financial Services Limited

Capital Raise The amount to be raised is J$500,000,000.00

Offer Price J$1.00 per share.

500,000,000 shares will be available for purchase and will be apportioned as

follows:
Number of Shares
- 162,500,000 Reserved Shares for Company Key Partners
Offered
- 125,000,000 Reserved Shares for Company Applicants
- 212,500,000 ordinary shares for Non-Reserved/General Public Pool
Open: May 27, 2022 @ 9:00am
Subscription Period
Close: June 10, 2022 @ 4:30pm
1) To expand its loan portfolio regionally through acquisitions and strengthen
capital base.
Use of Proceeds 2) To settle existing debt obligations the Selling Shareholders assumed on behalf
of the Company.
3) Cover invitation and listing expenses (not exceeding) J$25million.

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EQUITY RESEARCH
Initial Public Offer – Dolla Financial Services Limited
May 2022

2. INVESTMENT RATIONALE
Positives
 Tax Relief: Should Dolla Financial successfully list
its shares on the JSE Junior Market, it will benefit
from a corporate income tax relief for 10 years.
Consequently, the company will benefit from
higher earnings and improved cash flows, given it
remains compliant with the relevant regulations.
 Relatively Discounted Valuation: The Company
has a price-to-earnings of 11.54x, which is a
discount the Junior Market average of 21.0x and
its financial peers of 14.50x.
 Attractive Dividend Policy: Dolla intends to
distribute up to 50% of its net earnings to
shareholders, subject to the company’s
reinvestment needs.
 Exposure to Guyana: Dolla’s Guyana subsidiary is
anticipated to benefit from the favorable outlook
for the Guyanese economy, which is projected to
grow by 47.2% for 2022, led by growth in the oil
and gas subsector.
 Expansion of operations and loan book: Net
proceeds from the capital raise are to be used to
expand the Company’s loan portfolio through
organic, as well as, inorganic efforts.
Negatives
 Global Tension and Macroeconomic
uncertainties: Should macroeconomic
conditions deteriorate because of global
tensions, Dolla’s earnings would be impacted
by their client’s increased inability to service
loans as a result of reduced business activity.
This is likely to result in higher provisions for
expected credit losses, as well as
nonperforming loans.
 Higher Interest Rates: The aggressive
stance of central banks worldwide aimed at
increasing interest rates in response to
persistently high inflation is likely to
adversely impact the overall demand for risk
assets such as stocks. This is due to the
increased attractiveness of safer fixed
income securities offering higher coupon
rates. As such, equity multiples may depress
going forward.

3. COMPANY PROFILE

Dolla Financial Services Limited (“Dolla”, “the Company”) is a limited liability company incorporated
on October 14, 2009. Dolla currently operates out of eight (8) locations island-wide, with its
headquarters at Unit No. 1 Barbican Business Centre, in Kingston, Jamaica. The Company also has an
international location in Georgetown, Guyana. Dolla’s principal business activity is microfinancing,
which involves the offering of personal and business loans to individuals who typically lack access to
conventional banking and related services. In 2014, Dolla ventured into the remittance and cambio
markets following the necessary approvals from the Bank of Jamaica. However, in an effort to focus
on its core business area of microcredit services, Dolla wound up its cambio, remittance and bill
payments divisions in 2018.

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EQUITY RESEARCH
Initial Public Offer – Dolla Financial Services Limited
May 2022

Currently Dolla Financial Services Limited offers a diverse mix of loan products, with Dolla Elite (loans
targeted to entrepreneurs and high net worth clients) and Dolla Valu Personal (loans targeted to
employees of both private and public companies), accounting for 46% and 34% of all loan types
respectively. As at December 31, 2021, 67% of the loan portfolio represented business loans while the
remaining 33% were personal loans. Most notably, 22% of the loans are to companies in the trucking,
haulage & transportation industries, 18% to construction related entities and 17% to manufacturing
companies. Together, these three segments make up 57% of Dolla’s loan portfolio clients.

3.1 Board of Directors and Key Executives

The following table highlights the board of directors:

Name Role
Ryan Reid Non-Independent Director, Chairman
Kadeen Mairs Non-Independent Executive Director, CEO
Christopher Yeung Non-Independent Director
Dr. Michael Banbury Non-Independent Director
Lisa Lewis Independent Director
Dane Patterson Independent Director

3.2 Ownership Structure

Before Invitation After Invitation

No. of Shares % Ownership No. of Shares % Ownership
FirstRock Private Equity Limited 1,687,500,000 75.00% 1,500,000,000 60.00%
DeQuity Capital Management Limited 562,500,000 25.00% 500,000,000 20.00%
Key Strategic Partners Reserve Pool - 0.00% 162,500,000 6.50%
Reserved Shares for Company Applicants - 0.00% 125,000,000 5.00%
Non-Reserved/General Public Pool - 0.00% 212,500,000 8.50%
Total 2,250,000,000 100.00% 2,500,000,000 100.00%

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EQUITY RESEARCH
Initial Public Offer – Dolla Financial Services Limited
May 2022

4. FINANCIAL HIGHLIGHTS

4.1. Selected Ratios

DOLLA'S FINANCIAL SNAPSHOT

3-Months Ended
FY2017 FY2018 FY2019 FY2020 FY2021 Mar-21 Mar-22 %
CAGR
INCOME STATEMENT J$'000 J$'000 J$'000 J$'000 J$'000 J$'000 J$'000 Change
Total Income 23,796 114,930 118,359 253,420 395,242 102% 64,257 141,436 120%
Net Interest Income 10,433 45,625 92,368 201,690 325,647 136% 43,717 128,630 194%
Operating Expense 44,141 72,097 105,970 183,707 153,440 37% 34,549 59,218 71%
Net Profit Before Tax (22,414) 35,432 (4,460) 17,541 167,797 68% 17,035 65,894 287%
BALANCE SHEET
Total Assets 96,294 161,645 240,493 334,018 861,094 73% 361,485 939,059 160%
Loan, Net of Loan Loss Provision 58,868 121,075 202,493 294,259 750,503 89% 350,164 917,612 162%
Total Loans 58,868 124,643 215,865 316,308 792,975 92% (24,535) (47,348) 93%
Loan Loss Provision (or ECL) - (3,568) (13,372) (122,049) (42,472) N/A 325,628 870,263 167%
Total Liabilities 151,084 124,373 212,134 324,546 564,110 39% 341,037 565,912 66%
Cash and Cash Equivalents 29,261 29,550 26,427 5,577 65,587 22% (3,164) 2,107 -167%
Shareholder's Equity (54,790) 37,272 28,359 9,472 314,984 N/A 20,448 373,147 1725%
Retained Earnings (55,790) (26,527) (35,440) (54,327) 65,222 N/A (43,351) 134,769 -411%
CASH FLOW
Net Cash from Operating Activities (54,196) (1,847) (113,867) 46,896 71,160 - (6,618) (51,840) 683%
Net Cash used in Investing Activities (2,990) (4,553) (2,931) (3,936) (3,299) - (6,442) (12,529) 94%
Net Cash used in Financing Activities 61,157 6,698 113,675 (7,182) (62,370) - 4,318 6,418 49%
Cash and Cash Equivalents 29,261 29,550 26,427 5,577 65,587 - (3,164) 2,108 -167%
FINANCIAL RATIOS
Efficiency Ratio 190% 63% 90% 72% 39% - 58% 45% -
Net Interest Margin 35% 51% 57% 81% 62% - 75% 69% -
Net Profit Before Tax Margin -97% 31% -4% 7% 42% - 27% 47% -
Return on Average Asset -35% 27% -2% 6% 28% - 6% 33% -
Return on Average Equity 0% -405% -14% 93% 103% - 48% 110% -
Debt to Capital 162% 74% 88% 97% 61% - 94% 56% -
Loan Loss Provision (or ECL to Total Loans) 0% 3% 6% 7% 5% - 7% 5% -
Non-Performing Loan Ratio 7% 6% 6% 12% 5% - 8% 5% -
Earnings Per Share -$0.009 $0.014 -$0.002 $0.007 $0.067 - $0.007 $0.026 -
VALUATION*
Price-to-Earnings (Using Pofit Before Tax) -111.54 70.56 -560.54 142.52 14.90 - - 11.54 -
Price-to-Book Value -45.63 67.07 88.16 263.94 7.94 - 122.26 6.70 -
* IPO price and post invitiation outstanding shares were used in the valuation calculations

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EQUITY RESEARCH
Initial Public Offer – Dolla Financial Services Limited
May 2022

4.2. Income Statement

Dolla’s total income over the last five financial years has
trended upwards. The Company experienced a compound
annual growth rate (CAGR) of 102% in its total income between
FY2017 to FY2021. The Company indicated that its steady
growth in total income is attributable to the augmentation in
net interest income stemming from increased funding over the
period, as well as, the revision and introduction of its product
offerings. The expansion in Dolla’s total income was mirrored
in net interest income, as the Company’s interest expense grew
at a slower pace. Notwithstanding the volatile environment
created by the coronavirus pandemic, Dolla’s net interest
income grew by 61.5% from J$201.7million in FY2020 to
J$325.6million in FY2021. Of note, during FY2021, the Company
acquired its ninth branch, which is located in Georgetown,
Guyana.
For the 3-months ended March 2022, Dolla recorded net
interest income of J$128.6millon, this represents a 194%
increase when compared against the J$47.3million recorded in
the corresponding period of 2021.

Dolla’s earnings before tax (EBT) have fluctuated over the

review period. In both FY2017 and FY2019 the Company
reported net losses before taxes of J$22.4million and
J$4.5million respectively. Dolla indicated that the losses
recorded generated from increased operating expenses
primarily linked to staff costs. The Company highlighted that its
staff complement in June 2019 increased by 50%, to twenty-
four (24) employees, relative to its sixteen (16) staff members
in 2018. For FY2021, Dolla bettered its net profit before tax
performance by J$150.3million relative to FY2020. The
Company improved its net profit before tax margin from 7% in FY2020 to 42% in FY2021. This was a result of
increased growth in interest income, coupled with a reduction in operating expenses over the period. For the 3-
months ended March 2022, Dolla Financial saw a 286.8% climb in net earnings before tax when compared to the
corresponding period in 2020. The Company noted this was due to continued expansion in its loan portfolio which
grew from J$325.6million for the quarter ended March 2021 to J$870.3million in the 3-months ended March 2022.

The Company’s efficiency ratio dipped to a low of 39% in FY2021 compared to high of 190% in FY2017. This
improvement highlights Dolla’s ability to reduce its expenses to generate more income. Dolla noted that the positive
developments in its efficiency ratio over the review period can be attributed to its concerted effort to create
relationships with suppliers to secure optimal pricing and limiting expenses to an “as needed” basis.

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EQUITY RESEARCH
Initial Public Offer – Dolla Financial Services Limited
May 2022

4.3. Balance Sheet Performance

Total assets for Dolla Financial Limited grew at a CAGR of 73%

over the last five years. As at December 2021, total assets for
the company stood at J$861million, a J$527.1million or 157.8%
increase from the J$334million recorded in FY2020. This was
largely attributable to a 155% increase in loan receivables, net
expected credit losses (ECL). Between FY2017 – FY2021, Dolla
Financial Services aggressively grew its loan portfolio, net
expected credit losses, at a CAGR of 89%. Over the five-year
period, net loan receivables grew from J$58.9million to
J$750.5milion as at December 2021. The Company indicated
that the significant increase its loan portfolio is primarily linked
to a rise in secured loan disbursements to businesses operating
in industries that thrived in the pandemic such as business
process outsourcing, construction and manufacturing.

Additionally, during FY2021, the Company secured J$200million

in funding via a private placement and a US$1million loan from
Derrimon Trading Limited (DTL). The additional funding
bolstered Dolla’s loan growth. As at March 2022, the total
assets reported was J$939.1million. This represents a 160%
increase when compared against March 2021. The growth in
assets over the 3-month period emanated from further growth
in Dolla’s loan portfolio.

As at December 2021, total liabilities recorded were

J$546.1million, an increase of 68.3% from the J$324.5million as
at December 2020. The uptick in liabilities is chiefly attributable
to the additional funding secured during FY2021 through its
private placement and loan from DTL to augment its loan
portfolio. Dolla’s shareholders’ equity fluctuated over the
review period originating from negative retained earnings from
FY2017 to FY2020. The surge in shareholder’s equity as at FYE2021 is due to the Company’s increased profitability
and the conversion of 1.3million preference shares held by First Rock Private Equity Limited to equity.

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EQUITY RESEARCH
Initial Public Offer – Dolla Financial Services Limited
May 2022

5. VALUATION APPROACH

The value of the Dolla Financial Services Limited was estimated using two approaches:
1. Comparative Market Approach
2. Discounted Cash Flow (DCF)

The following summarizes the indicative values based on the various approaches highlighted above:

Method Estimated Value Per Share

1. Comparative Market Approach
1.1 P/E Ratio $0.82 - $1.50
1.2 P/B Ratio $0.63 – $1.27
2. Discounted Cash Flow $1.97

1. Comparative Market Approach

The value of Dolla Financial based on the market approach was estimated by comparing P/E and P/B multiples for
similar businesses that are quoted on the Jamaica Stock Exchanges. P/E and P/B multiples estimated for comparable
companies listed on the JSE Junior Market averaged 14.75 and 2.68 times respectively. For Junior Market financial
companies, the P/E ratio ranged between 9.01 and 16.50 times, while the P/B multiples ranged between 1.08 and
6.56 times.

1.1. P/E Ratio

At the end of March 2022, the 12-month earnings per share (EPS) amounted to $0.03. Based on Dolla’s offer price
of $1.00, the trailing 12-month P/E ratio was calculated at 11.54. Having regard for local conditions, company
specific risks, the expected growth in earnings due to capital injection from the current raise, and the ability to
capture market share in the micro loan segment, a forward 12-month EPS of $0.09 was calculated for Dolla. Applying
the current financial market P/E low and high of 9.01times and 16.50times, a range of multiples between 9 to 16.50
times, the value of Dolla based on P/E multiples is estimated to range between $0.82 and $1.50 per share.

1.2. P/B Ratio

Dolla’s book value as at March 2022 was J$373.1million. In estimating the Company’s Although Dolla’s financial
market peers reported P/B multiples ranging from 1.08 times to 6.56 times, given that Dolla Financial Services is in
its growth phase, it is anticipated that the firm’s stock price will trade higher than book value. Consequently, based
on current market conditions, P/B multiples ranging from 2times to 4times were deemed appropriate. Using the
projected book value per share of $0.32, the value per share of Dolla based on P/B multiple ranges between $0.63
and $1.27.

2. Discounted Cash Flow

Value is future oriented and accordingly the most appropriate basis to value Dolla is its future earnings potential.
Within this context a fair estimation is based on the range of values arrived at using the DCF method.

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EQUITY RESEARCH
Initial Public Offer – Dolla Financial Services Limited
May 2022

The DCF valuation was based on conservative projections given the company’s loan book discounted using the GOJ
most recent 6-month treasury yield with risk premiums adjusted to reflect local market and company specific
circumstances. With a terminal growth rate of 2%, Dolla’s value per share using the DCF method is estimated at
$1.97.

6. OUTLOOK & RECOMMENDATION

In July 2021, the Microcredit Act was passed and it seeks to licence and regulate microcredit institutions under the
supervisions of the Bank of Jamaica (BOJ). The Act serves to discourage lending money at excessive interest rates
that are unjustified by the risks, reduce terrorist financing as well as, reduce the risk of the industry being used to
facilitate money laundering. Currently there are approximately 200 companies operating in the microcredit industry
in Jamaica, with an estimated 85% unregulated. In 2020, according to Jamaica Association for Microfinance, the
microcredit industry generated an estimated J$20billion in revolving loan facilities. With the Microcredit Act set to
take effect in July 2022, it is expected that Dolla Financial Service Limited’s market share will increase, ultimately
improving its profitability performance in the near term. Additionally, the implementation of the Microcredit Act
also creates opportunities for Dolla to grow inorganically by way of loan portfolio acquisitions and consolidations.

Dolla Financial Limited entered the Guyana market in August 2021. According to the IMF’s projection, Guyana is
projected to record an average GDP of 18.3% over the next five years. Against the backdrop of Dolla Financial
Services being one of the pioneers in the microcredit industry in Guyana, the positive outlook for the country’s
economic expansion should bode will in bolstering Dolla’s financial performance in the medium term. Moreover,
Dolla has indicated that J$250million from the current public offer is intended for further expansion of its loan
portfolio regionally and the strengthening of its capital base.

It is important to note, that higher interest rates and global tensions poses a threat to Dolla’s financial performance.
Should macroeconomic conditions deteriorate because of global tensions, Dolla’s earnings would be impacted by
their client’s increased inability to service loans because of reduced business activity. This is likely to result in higher
provisions for expected credit losses, as well as nonperforming loans. Moreover, in a rising interest rate
environment, with debt of J$452.8million set to mature by 2023, Dolla Financial Services should see an increased
cost in its funding when refinancing, which could affect the Company’s profitability.
The various valuation methods employed indicated that Dolla’s fair value estimate ranges from $0.63 - $1.97. This
represents potential downside of 37% to an upside of 97%. In balancing the potential risks, an investor with a
moderate to aggressive investment profile could consider participating in the initial public offering.

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EQUITY RESEARCH
Initial Public Offer – Dolla Financial Services Limited
May 2022

Disclaimer
The information contained herein was obtained from sources which GK Capital Management Limited (“GKCM”) considers reliable but we have
not independently verified such information and thus do not guarantee that it is accurate or complete as to all material facts and should not
be relied on as the primary basis for any investment decision. The information, estimates and opinion contained herein constitutes GKCM’s
judgment as of the date of this report and GKCM does not undertake any obligation to update them. All expressions of opinions are subject
to change without notice. Additional information may be available upon request. The above recommendations are indicative and do not
constitute an offer to buy or sell any security or other asset and GKCM is not providing investment advice through this report. Past
performance is not indicative of future results and no representation or warranty, express or implied, is made by GKCM regarding future
performance. Recipients of this report should perform their own independent review of any security they wish to purchase or sell as well as
the issuer of said security and make their own independent decision after considering all relevant factors, including without limitation, their
investment needs, objectives and financial circumstances. As such no warranty, express or implied, as to the accuracy, timeliness or
completeness of this report is given or made by GKCM in any form whatsoever.
GKCM may have a proprietary interest in the securities it recommends, including the above security and as such may trade for its own
accounts in any of the securities or assets of issuers mentioned herein or in related investments and may also from time to time perform or
solicit investment banking or other services, including underwriting securities for, or from, any issuer mentioned herein.

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